House Prices Strengthen In Washington

Washington state’s housing market strengthened in Q2 2013. Home sales are up by over 20% year-over-year, making it possible that this could be the strongest year for Washington’s real estate market since the credit crunch.

Analysts are pointing to a tight supply of available housing and warning of the potential for a bubble to emerge. With a median price of $251,100 for the quarter, showing year-over-years gains of 6.4%, the price could continue to rally more if demand remains as severely restricted.

The rise in prices has led to renewed calls for lenders to release foreclosed homes that remain in their possession, with the hope that price rises might flatten out, or at least slow the rate at which they are growing. Some analysts fear that, as house prices rise, lenders might be tempted to hold onto homes for longer, hoping to capture some of the perceived upside potential.

While construction work is ongoing in Washington, it is likely to take a while before supply catches up with demand. This had led some to voice concerns about the affordability of housing in the state, particularly for those seeking to rent, or take their first step onto the housing market. The first step is naturally the most challenging, particularly when you have no existing equity and are more likely to have a lower income.

“Existing home sales during the second quarter of 2013 increased 5.4 percent from the first quarter, and 21 percent from a year ago, reaching a seasonally adjusted annual sale rate of 93,280 homes. That means that if the pace for the quarter continued unchanged for a year, that number of homes would be sold. This represents the highest sales rate in six years,” writes The University Of Washington[2]. “While quarter-to-quarter home sales increased in only half of Washington’s 39 counties at seasonally adjusted annual rates, strong markets in the largest urban areas pulled the statewide tally higher.”

The global financial crisis began crippling the real estate market and the broader economy from 2007. Banks would sell mortgages, package them up as collateralized debt obligations (CDOs) and sell them onto investors. This created a disincentive for the banks to properly vet debtors, because they did not have to assume the risk on their own balance sheet.

But while this disincentive did exist, many banks still kept many CDOs on their own balance sheet, exposing them to the risk of defaults. Rather than simply packaging up all their products and shipping them off, banks were keeping some CDOs for themselves. Eventually, defaults began, banks began to lose confidence in the creditworthiness of each other, and governments intervened to prop up the banking system.

Now pockets of the economy are showing signs of recovery and growth. Investors such as Peter Lionel Briger Jr.[1]are vying to capture the upside potential and isolate the most robust investment opportunities. For homeowners in Washington, their house might be the asset that allows them to capture some upside of their own.